Germany’s eight major ship financiers have lent a total of105 billion euros to the sector, a fifth of which arecategorised as non-performing, Moody’s said in a report.

“We expect the extended downward shipping cycle to causerising problem loans in the shipping sector during 2013-14,requiring German banks to increase their loan-loss provisions.This will challenge their earnings power”, the agency said.

Moody’s findings chime with those of peer Fitch, which saidlate in November that it expects losses from shipping portfoliosto remain high in 2014, particularly for German banks.

Problems with shipping loans will see banks’ combinedcapital decreased by 13 percent until maturity of these loans,further weakening the lenders’ financial health.

Moody’s calculated only 30 percent of the problem shippingloans of its total sample were covered by loan-loss provisions.”(This) is likely to prove insufficient,” it said.

A European bank health check may trigger additionalprovisioning as loans benefiting from remediation measures -such as covenant waivers or an extension of repayment schedules- may be re-classified as problem loans under the new standardof the European Banking Authority, the ratings agency said.

Moody’s also said it expected the a five-year shipping slumpto continue for several years as large numbers of new vesselscontinue to hit the waters, exacerbating chronic overcapacity.

($1=0.7289 euros) (Reporting by Arno Schuetze; editing by David Evans)